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All Company Working Group Joint Document

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All Company Working Group Joint Document Representations: Strategic regional water resource solutions joint statement Document Reference: J007a This document is the joint representation with the other companies with strategic water resources schemes: Affinity Water, Anglian Water, Severn Trent Water, Southern Water, South West, Thames Water, Wessex and Water Resources South East. In this document general matters, which reflects the agreed position of all the companies United Utilities Water Limited Strategic regional water resource solutions Affinity Water, Anglian Water, Severn Trent Water, Southern Water, South West, Thames Water, United Utilities, Wessex Water 30 August 2019 Joint Company Statement Following the Draft Determination (DD) the working group has met several times to continue to work collaboratively to optimise the processes for developing the next set of strategic water resource solutions. The DD has added some additional options into the mix of schemes as well as increasing the number of companies working across the schemes from six to eight. These additional companies and schemes are welcomed as they will help provide additional choices when deriving the best value plans for customers, stakeholders and the environment. Our engagement with the regulators during the development of the plan have continued to help and shape this response. The recent meetings with RAPID, EA and Ofwat (in July and August) have been very encouraging and we look forward to working collaboratively to align the gated processes, national framework timetables and statutory planning processes. We want to ensure that the timetables and processes are efficient and co-ordinated, and we believe we can achieve this through a few simple re-alignments of some of the gates during the process. Through this alignment we can ensure that the timetables developed by the National Framework and agreed with the senior steering group can be achieved. The expanded working group remain committed to continue working with RAPID, EA, Ofwat and the DWI to make all of the planning processes and statutory timetables a success. 1 Executive summary The proposed gateway process to develop the next set of strategic water resource options continues to be a welcomed step forward. It provides a good mechanism for the industry, regulators, stakeholders and customers to input into the development and scheduling of these strategic solutions through the combined set of statutory and regulatory processes, including the National framework, Drinking Water Safety Plans, Business Plans and WRMPs. The All Company Working Group has continued to make good progress with the development of the detail for this new process. The work is ongoing and the companies have coordinated their efforts and worked efficiently to produce a cohesive and coherent suite of proposals both at the scheme level and the joint working group level. There continues to be a series of challenges to be worked through as the detail of this new process evolves and early engagement with the RAPID team has helped. All parties continue to work together to ensure a smooth integration of the statutory and non- statutory processes and programmes. Whilst we recognise that we will continue to work with RAPID going forward, the purpose of this document is to highlight where we remain concerned and how we believe these concerns could be overcome. These can be summarised as follows, which we have highlighted in our discussions with RAPID: proposed gate timings and definitions of activities do not align with the timeline of the National Framework and the statutory Water Resources Management Plans (WRMPs), which companies must adhere to. We believe some minor realignment of the gates and clarification of the required activities by each gate can resolve this. Specifically, gates 1 and 2 should be moved from April to August, and gate 1 should be used as the initial test for each option, with gate 2 being the key decision point for the option continuing to full design stage of DCO or non-DCO development. As the planning route for each scheme, DCO or non-DCO, and the degree of planning complexity and investigation requirements won’t be known until August 2020, some flexibility in gates 3, 4 and 5 is required to ensure the challenges of either planning route can be accommodated. the incentives on companies to spend efficiently are weakened as they depart from the established regulatory mechanism to share totex overspend and underspend with customers. Applying the standard regulatory incentive mechanism would resolve this. the reconciliation mechanism by which unneeded totex is returned to customers via revenue only adjustment risks penalising companies. This can be resolved by allowing companies to return money to customers in the same way as it was raised. although the overall totex allowance appears sufficient, allocation between gates is inflexible. Allowing companies to carry forward unspent totex from one gate to future gates would resolve this. 2 the requirement for consultation at each gate may cause confusion and ‘fatigue’ with stakeholders and customers. We believe that sufficient consultation opportunities are provided by the statutory WRMP and new regional water resource planning processes. Decisions made by Ofwat and the regulators would of course be published as part of the Board minutes, which will make the processes open and transparent. We believe that these changes would help all parties to deliver the work required to promote the schemes in the tight timetable that we are facing. We would welcome any further discussion with yourselves or via RAPID to assist inclusion of the above in your Final Determination. 3 Contents 1 Executive summary .......................................................................... 2 2 Introduction .................................................................................. 5 3 Gates – definition of activities ............................................................. 6 3.1 Further work on the definition of gate 1 .............................................. 6 3.2 How we propose to develop gates 2 to 5 ............................................. 11 3.3 Proportion of funding at each gate .................................................... 11 4 Gates - timing and interaction with WRMP24........................................... 13 4.1 Schemes and timelines .................................................................. 14 4.2 Gateway timings ......................................................................... 14 4.3 Gateway durations ....................................................................... 16 4.4 Consultations ............................................................................. 17 5 Reconciliation mechanism ................................................................. 18 5.1 Reconciliation mechanism to align with funding .................................... 18 5.2 Reduced efficiency incentives ......................................................... 19 5.3 Penalties for late delivery or poor quality ........................................... 19 5.4 Restricted opportunity to identify new scheme partners. ......................... 20 5.5 Deliverability through the gateway process .......................................... 20 5.6 Working with RAPID to establish the gateway process ............................. 20 6 Proposed forward work programme with RAPID ........................................ 22 Appendix A: Mott MacDonald report ................................................................ 23 Appendix B: DD and proposed revised timelines .................................................. 23 4 2 Introduction As part of the initial assessment of companies’ business plans (IAP) Ofwat introduced proposals to support the delivery of strategic regional solutions to support drought resilience in the south east over the next 5 to 15 years. The proposals allocate funding and describe an associated gated process for the co-ordination and development of a consistent set of strategic water resource schemes. This proposal affected six companies, these being: Affinity Water, Anglian Water, Severn Trent Water, Southern Water, Thames Water and United Utilities. Companies responded to the IAP proposal in April and May with further detail on the gated process, proposed totex allowances, joint working arrangements and funding mechanisms. As part of the Draft Determinations (DDs) Ofwat refined its proposals for strategic regional solutions, responding to companies’ recommendations and amending its proposal. Ofwat also extended its proposals to include two more companies, Wessex Water and South West Water. These companies, along with the six companies identified at IAP, form the All Company Working Group (ACWG). Since the DDs, companies have continued to work together and with RAPID, EA and Ofwat, to develop the strategic regional solutions (SRS) proposals, and aim to continue to do so up to and beyond Final Determinations (FDs). This document is a joint response by the ACWG to Ofwat’s DD proposals on SRS. Each company may also submit their own individual response, on aspects of the DD specific to them. The rest of this paper is structured as follows. Section 3 provides further detail on the definition of the activities to be carried out up to each gate; Section 4 reviews the proposed timing of each gate and recommends some amendments to ensure alignment with existing statutory processes; Section 5 sets out some concerns we have with the proposed funding and reconciliation
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